![]() This has prompted many buyers to put their searches on hold. Interest rates hit rock bottom during the Covid-19 pandemic but are now soaring along with home prices, driving up the cost of homeownership. A future article in this series will take a deep dive into mortgages, but for a primer on them and other real estate terms you might encounter while shopping for a home, take our home buyer’s vocabulary quiz. Adjustable-rate mortgages, also known as ARMs, have fluctuating interest rates.Ī cash deposit of 20 percent of the purchase price is a typical requirement, but specialized mortgages for veterans, first-time buyers and others allow low, or sometimes nonexistent, down payments. A 15-year-fixed-rate mortgage offers a lower interest rate in exchange for a higher monthly payment, while the 30-year version offers a higher rate and lower monthly payment, but a higher total cost over its longer term. So if you don’t see yourself being able to keep your household expenses below that threshold in the near future, you’ll probably have to hold off on buying a home.Ī mortgage is not a one-size-fits-all product. How much of your income will go toward your mortgage and other debt is important: Most lenders require that no more than 35 percent goes toward your housing expenses and other unavoidable bills. Don’t be discouraged - there are home loans designed specifically for borrowers with lower credit scores - but in general, you’ll need a score of at least 620 to secure a loan. Your credit score is going to matter, too, so if you’re carrying debt, have a history of maxed-out credit cards or are late paying bills, you’ll want to focus on cleaning up your balance sheet before applying for a mortgage. Lenders look for financial stability in loan applicants, so if you’re earning a steady paycheck, you have a leg up. Unless you’re independently wealthy and ready to purchase a home with cash (if you are, why are you reading this article?), you’ll need to qualify for a mortgage.ĭoing so depends on more than just your bank balance, though savings matter: Even if your income will cover your expected mortgage payments, buyers with cash socked away are better positioned to make a down payment and meet the additional costs of homeownership, which include closing costs, homeowners insurance, taxes and maintenance. And when you own a home rather than rent it, the cost of maintenance, repairs and big-ticket items like a new boiler or roof are entirely on you.įirst and foremost, the decision to rent or buy will depend on your financial situation. A lack of flexibility roots homeowners in one place and makes it complicated to leave (the flip side to that sense of security). Property taxes can cost homeowners hundreds or thousands of dollars a month. There’s the sense of stability, the opportunity to build equity, the protection from unexpected rent increases and the freedom to customize your living space without a landlord’s approval.
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